g
becomes more consultative: if not exactly advising the bank in terms of what they should do, then nurturing them in the right direction with reference to the best practices that we see elsewhere and demonstrating how standardisation is to their benefit.’ With the demands of Islamic banking added, what started as quite straightforward products can become ‘fairly tortuous’, said Padmanabhan, where there is ‘a whole lot of uncertainty with complying and a lot of risk with not complying’. Non-compliance not only carries a high degree of reputational risk, but also a major threat for any institution of ‘being shut out of all business’. There is ‘a certain sense of fear, uncertainty and doubt about that’. Fundamental to the whole Islamic finance concept, he believes, is good risk management. As there is no clearly articulated interest rate that prevents an institution from having to take part in the risks of the counterparty, the understanding of the risks of that counterparty is extremely important. But, said Padmanabhan, ‘in some sense, Islamic finance was built for a cosier time when the banks and the counterparties knew each other really well’. Here, ‘the character of the counterparty was more important than collateral’. Over the last few years, with the increase in uptake of Islamic finance and the commercial imperative driving some decisions, it is not just local banks that are involved, but also multi-nationals. Generally, it is not possible any more to know each and every client personally. In terms of Know Your Customer (KYC) and counterparty risk, ‘if we want to stick with Shari’ah compliance we will have to use technology because it is the only way to circumvent that uncertainty’.
The debate about what constitutes a truly complaint Shari’ah banking product is not only to do with interpretations but also about roots and structure. Does a system need to have this form of banking set out at the initial design stage or is it adequate to tailor an existing conventional one? Emotions can run high and there are a couple of suppliers that seek to take the high ground. The most vocal of these has been Kuwait-based Path Solutions. It sought to institutionalise this when it gained certification from AAOIFI for its iMAL offering, the first core system supplier to achieve this. In fact, the whole accreditation process became more muddled still during 2013. Path, after a couple of years of being able to boast the AAOIFI stamp of approval, saw this withdrawn in September 2013. It followed the setting up of a partnership between AAOIFI and Ernst & Young and subsequent changes to the accreditation process. Path voiced
concerns about the new process and its costs but pointed out that ‘what has been certified is certified’. In H2 2014, it gained a Shari’ah compliance certification for iMAL from Deloitte.
Some established systems, such as Misys’ Equation, have built up significant numbers of Shari’ah banking users. Suppliers of newer systems would also point to the flexibility of their offerings in retort. A fair amount of customisation can be done through parameters. Mohammed Kateeb, group chairman and CEO of Path, felt complexity is not inherent in Islamic banking per se, but that the problem arises when it is viewed through the lens of conventional banking. Islamic banking is ‘completely different’ and therefore requires a different approach. ‘Islamic finance is not just changes in terms and labels’. ‘It is different in the financial instruments and the way they are handled, the process and the documentation.’ The complexity, he argued, ‘comes from banks or technology vendors trying to force conventional IT solutions to handle Islamic finance by customising these conventional systems’. This, he added, results in a ‘cumbersome and unnatural way of handling Islamic finance’. The only solution for Kateeb was to build systems from the ground up (a common claim over the years from Path). However, Path is not the only vendor to believe this. ITS commenced re-building its original Islamic platform from scratch a few years ago. The old platform was effectively an Islamic workaround and, admitted Abdou, ‘we started to see the dilemmas in it and the chaos we created for ourselves’. Now, rather than offering preset parameters based on a customised and ever-changing version of a conventional system, the vendor’s newer Ethix platform incorporates four separate but interactive engines, covering the definition of instruments, new products, accounting, and workflow. ITS claims that the concept allows a banking client, and its advisory board, to define the entire Shari’ah process – and every attendant characteristic – from the ground up. This model ‘does not dictate to the bank what Shari’ah compliance is’, stated Abdou, adding that parameterisation may be done by the bank’s business people without resorting to IT. The ability to support the current desired Shari’ah banking product set and to support future offerings will be a key part of the selection process. In many ways, this is just the same as a bank looking for any other functionality. The requirements should be defined, with involvement from the business users, and embodied within the Request for Proposal (RFP), workshops and gap analysis. They should
Islamic Report
www.ibsintelligence.com 11
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160 |
Page 161 |
Page 162 |
Page 163 |
Page 164 |
Page 165 |
Page 166 |
Page 167 |
Page 168 |
Page 169 |
Page 170 |
Page 171 |
Page 172 |
Page 173 |
Page 174 |
Page 175 |
Page 176 |
Page 177 |
Page 178 |
Page 179 |
Page 180 |
Page 181 |
Page 182 |
Page 183 |
Page 184 |
Page 185 |
Page 186 |
Page 187 |
Page 188 |
Page 189 |
Page 190 |
Page 191 |
Page 192 |
Page 193 |
Page 194 |
Page 195 |
Page 196 |
Page 197 |
Page 198 |
Page 199 |
Page 200 |
Page 201 |
Page 202 |
Page 203 |
Page 204 |
Page 205 |
Page 206 |
Page 207 |
Page 208 |
Page 209 |
Page 210 |
Page 211 |
Page 212 |
Page 213 |
Page 214 |
Page 215 |
Page 216 |
Page 217 |
Page 218 |
Page 219 |
Page 220 |
Page 221 |
Page 222 |
Page 223 |
Page 224 |
Page 225 |
Page 226 |
Page 227 |
Page 228 |
Page 229 |
Page 230 |
Page 231 |
Page 232 |
Page 233 |
Page 234 |
Page 235 |
Page 236 |
Page 237 |
Page 238 |
Page 239 |
Page 240 |
Page 241 |
Page 242 |
Page 243 |
Page 244 |
Page 245 |
Page 246 |
Page 247 |
Page 248 |
Page 249 |
Page 250 |
Page 251 |
Page 252 |
Page 253 |
Page 254 |
Page 255 |
Page 256 |
Page 257 |
Page 258 |
Page 259 |
Page 260 |
Page 261 |
Page 262 |
Page 263 |
Page 264 |
Page 265 |
Page 266
